Over £390bn held in funds will be able to access property vehicles under proposals
More than £390bn of retail assets in unit-linked funds will have a wider investment universe under FSA proposals.
Meanwhile, the regulator is also consulting on changing the non-Ucits retail scheme (Nurs) rules to allow retail funds of hedge funds.
On the unit-linked side, the authority will put in place higher level rules, replacing the current regime that has been in place for 13 years. This is in line with the wider objective of moving towards more principles-based regulation.
These changes would allow investment in a wider range of assets while maintaining current levels of consumer protection, according to the FSA.
At the end of 2005, assets in such funds amounted to £650bn, with around £390bn considered retail money in pensions, mortgage and savings endowments, whole of life products and investment bonds.
Under current rules, unit-linked insurance funds cannot invest in collective property vehicles without a waiver, although they can hold direct property in specific territories.
The regulator has proposed removing these restrictions, allowing investment in collective vehicles as well as direct property in properly functioning markets rather than just specific territories.
A market is considered properly functioning if there are no barriers for repatriating money in the UK.
According to Dan Waters, the regulator's director of retail policy and asset management, current rules are out of date, inflexible and difficult to interpret.
Last week, the FSA also revealed draft rules for retail funds of hedge funds will be published by the end of the year.
In a separate consultation paper, the regulator proposes altering the existing non-Ucits retail scheme (Nurs) rules to allow for increased investment in unregulated schemes.
At present, there is a 20% cap on investments in such schemes, which includes hedge funds, and this would be removed under the changes.
However, if a scheme decides to invest more than 20% in such vehicles, it would have to abide to a range of due diligence principles.
Managers would also have to consider the liquidity of an underlying fund as well as how it is valued.
The proposed due diligence criteria are similar to the nine principles for hedge fund valuation outlined by the International Organisation of Securities Commissions last month. The principles encourage funds to avoid conflicts of interest by appointing independent parties to value assets, for example.
Until now, the majority of funds of hedge funds have been closed-ended schemes and this opens up such vehicles to the open-ended universe.
Comments on both sets of proposals are due shortly before the end of June.